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Cover Story | April 2014

Reforming the power sector: An action plan

The power sector is suffering from a number of anomalies. Here are a few suggestions for the new Power Minister to consider, from former power secretary VK Pandit
We have all the legislations in place. There is a Central Regulator fixing tariffs, and transmission has been declared as an independent activity from generation inviting more investments. While we have a capacity to transfer power from one region to another, there are peculiar problems with the opening up of this sector for investment. The sector was earlier considered a natural monopoly. There is a National Hydro-electricity Power Policy with little happening there because of environmental and sentimental reasons as also the existence of forests and other vital problems of rehabilitation and relief. The problem of land acquisition, the issues of right of way, compensation for land acquired, and compensatory forestation still remain.

The Electricity Act of 2003 enables ´Open Access´ but in practice it does not take place. Distribution of power remains a major hurdle. This is where the bread and butter of the power sector comes and with the health of state power utilities which have been unbundled, being in the red, it discourages foreign investments. Incidentally the over-dues of the state utilities have now been securitised to clean up their balance sheets. Add to this the continuing problem of fuel shortage (coal & gas), the power sector is facing a crisis. One could go on and on but for purposes of brevity some critical issues would be taken up.

The underlying philosophy in the suggestions that I would be proposing is an Area Development Programme so that the people of the State prosper and the State gains in GDP by selling power outside the State. A participative approach with the State and its people and in many places with the tribals, in the forest/naxalite areas is the crucial element in my proposal. As Power Secretary, these issues came to my mind which I did not pursue for the lack of enthusiasm. We, as insiders, often take a complacent view of the situation. As an outsider, one can do a bit of out-of-the-box thinking.

Take the case of hydroelectric power development in the Himalayas, the major source of hydroelectric power. The entry of the private sector has been a new element in implementation of projects. One needs to talk to a CMD from the corporate sector (in the hydroelectric area) in private and he will tell you that except for a few, most of the promoters are waiting for the development of the infrastructure by the State/Central governments before they take steps to implement their projects.

In an arbitration case of a project of just 6MW in Arunachal Pradesh as a member of the Tribunal, I noticed the utter antagonism the State has displayed in the implementation of the project. The reason in my view is the non-participative approach of the corporate sector/Government in its dealing with power project development in the area. One should remember that the major questions of land submergence, environment land acquisition and consequently relief and rehabilitation are the issues that affect the people of the State the most. What they get in return is the pittance of 12 per cent to 13 per cent of free power. Most of the power is transmitted out of the State to other States and the PSU or private sector unit which naturally works for profits takes all the revenues. I have always wondered why we cannot follow the approach we have adopted in Bhutan in exploiting hydroelectric potential.

The first project in Bhutan (Chukha) was implemented on the basis of 100 per cent grant from the Government of India and the implementation agency was also Indian. The project belonged to Bhutan and after using some power for meeting their own requirements, the country sold the entire power to India.

The second project, Kuruchi by NHPC, was also on the basis of their complete assistance and some power flowing to India.

The third project was Tala and now the grant portion came down, but the project which was jointly implemented by Bhutan and India (WAPCOS) remained a project owned by Bhutan and again most of the power was supplied to India (Northern India through a transmission line built by PGCIL and Tata Power).

It would not be incorrect to say that the entire GDP development in Bhutan has been excellent, due to this strategy. We did this in our strategic interest. The power is not costly by any standards. Why can´t we follow the same strategy in Arunachal Pradesh and maybe Jammu & Kashmir, both strategically placed States in India? In other words we do the projects jointly with Arunachal Pradesh (AP) and J&K, the projects could be implemented on the basis of 90 per cent grant meant for Special Category States, the project on completion could be taken over by the State Governments.

These States can utilise power according to their needs and sell the surplus power to the rest of the country. The infrastructure of roads etc., should be built with Central Government budgetary support. The price of the power could be fixed by a regulator in the North-east or the Central Regulator. The other States will not find it difficult to purchase the power because of its cost being reasonable. The GDP in the States of Arunachal Pradesh and J&K would rise like in the Kingdom of Bhutan. Both the States can be differentiated on a reasonable criteria (strategic importance) so that the other hydroelectric potential States do not ask for similar benefits.

The other issue is of area development co-terminus with the implementation of the project. All the State, Central, Centrally sponsored schemes, other schemes of dairy development, township development, MLA´s, MP´s fund etc., can be converged into the area where the project is to come up, instead of being dissipated into various areas with no impact being created.

In thermal development the private sector in the last plan period has come up in a somewhat big way. NTPC, however, still remains a big player and the States contribute their bit. But since land acquisitions and other issues with reference to Right of Way (PGCIL) remain, I have always wondered why we cannot make the people whose land has been acquired as equity holders in the project with long-term interest. Immediately a good compensation can be paid to take care of their short-term needs and the equity shareholding can take care of their long-term necessities. In giving compensation we can afford to be generous with our own citizens. This also applies to hydroelectric projects at all places (land acquisition compensation).We have to take the State and its people along with us in any development project. Water belongs to them, land is theirs and they must never get the impression that not only the resources of the State are being taken away but also a transfer of revenues is taking place. This is the alternative strategy I had in mind. Making the State and its people including the tribals your partner. The third issue is of fuel shortage. Almost 70 per cent of power generation is dependent on coal. While port areas can depend on imported coal which is already being imported in a big way, pit head or inland plants could again depend on a participative approach i.e., partnership or joint ventures with State PSUs like NTPC/Neyveli Lignite Corporation Ltd (which is already doing some mining projects) and joint ventures between Coal India Limited and the private sector which can be depended upon for bringing in new coal mining technology.

(The article is contributed by VK Pandit who was a former Secretary, Power, to the Government of India. He now works as a consultant for the infrastructure sector).

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